This question will look at Sainsburys performance and how it is affected by Sainsburys choice of generic strategy. Bowman’s strategy clock (appendix 1) is a theory that analyses a company’s competitive position. In order to identify which category a company falls into, the company’s products or services and costs are analysed to provide a generic strategy. Many organisations have a generic strategy based around either quality or quantity (price).
Sainsburys see themselves as in the middle, they have a policy were they can comfortably suggest that they provide good quality for a lower price, hence the phrase ‘really good value for money’ and the Sainsburys past long-term slogan “Good food costs less at Sainsburys”. Sainsburys then introduced the “try something new today” scheme to attract new customers to try new products. Sainsburys latest scheme is the “Be Good To Yourself” program, which suggest that every individually needs to treat themselves good, therefore purchasing quality goods is essential.
Sainsburys are clearly trying to promote that they are value for money, yet provide quality products. Now that it is, clear to see that Sainsburys is a hybrid (Appendix 1) organization; the effects on Sainsburys performance can now be analyzed. Being a hybrid company can affect performance of profits. Sainsburys and all other profit based organizations calculate profit as shown below; All costs and expenses deducted from Sales income Looking at this standard equation, it is clear to see that the lower the costs; the higher the profit margin.
Sainsburys achieve economies of scale and therefore reduce costs to maximize sales. This makes it difficult for smaller firms to enter the supermarket industry as all the top supermarkets have achieved economies of scale, leaving it almost impossible for small firms to make a profit in this industry. This also means there is a higher level of potential customers for the top supermarkets as small firms are continuously being forced out of the industry, leaving firms such as Tesco and Sainsburys a chance to increase market share.
This makes it clear to see that generic strategy is a major factor when it comes to profit and marketshare. Sainsburys are offering high quality goods for low prices but are not making enough profits as they only have 10. 5 % of the marketshare. Appendix 6 shows that Sainsburys are making losses and that they need to improve their performance. In the last year, Sainsburys have made a loss of 84. 6%, which is around 335 million pounds. Therefore, in terms of performance, Sainsburys should consider an alternative generic strategy. This may peak their performance and sales figures to increase marketshare.
When it comes to competitive rivalry, low cost companies tend to compete on price; therefore, there can be price wars in the supermarket industry. This can affect sales as well as profit. Sales can be increased by the hybrid generic strategy businesses as customers will demand more from cost focus and differentiation focus companies. There will be excessive demand from cost focus and differentiation focus supermarkets such as M ; S, Lidl and Aldi. This is because hybrid companies such as Sainsburys will be providing products of good quality just as M ; S is and also providing their customers with low prices, just as Aldi and Lidl are.
This change in consumer demand will create a further opening for hybrid organizations as more and more consumers will be attracted into that market. In turn, this will allow Sainsburys to expand as an organization, meaning generic strategy has a major role in the performance of Sainsburys. Sainsburys may wish to merge with smaller firms in order to attempt a takeover in terms of top position in the supermarket industry and in marketshare. Sainsburys may also merge with smaller firms to reduce costs.
Sainsburys can attempt to merge with firms such as Lidl, Aldi, Asda etc, and this will then give them a combined market share and possibly pushing Tesco aside to become the leading supermarket. Merging to a smaller firm(s) can also create a better understanding of the market as it has always been said that “1+1=3”, hence the phrase, “two heads are better than 1” Merging with smaller firms can also have potential drawbacks. Companies need to adjust to many things such as culture of each business, supplier chains, sales techniques, product range, adjust aims and objectives etc.
There are many areas that need to be looked at before a merger takes place as it can potentially destroy both companies if it fail. It may also be difficult for Sainsburys to merge with another organisation as Sainsburys may be seen as a liability as their sales figures have been decreasing over the past few years. The second direction that Sainsburys can take is to undergo a joint venture (explained in more depth in appendix 2). A joint venture is where two or more companies come together to share resources or competencies on a project.
There are many possibilities in a joint venture. Sainsburys can consider exploiting joint venture to try and break into other countries. This would not only increase sales and make Sainsburys a more global firm, but will also increase marketshare. If Sainsburys for example want to trade in Egypt and/or other African nations, it may be difficult to adapt sufficiently enough for them to make immediate profits as Sainsburys would need to learn about what the people want, what they are use to, how much money is in the community, etc. All these questions propose a threat to Sainsburys.
Not knowing the answers suggests that Sainsburys are walking into a market blind, except they will be wearing a very expensive blind fold as they would have invested millions of pounds in their attempt to establish themselves in a new market. Entering into a joint venture with a local firm can help Sainsburys answer the questions only locals will know. This type of development also allows Sainsburys to fully aware of what they are going into as they will know the type of market they are going into. Although obtaining useful information is important for Sainsburys, using it appropriately is also vital.
Local firms will also have the knowledge of previous trends and possible future trends allow them to be ahead of their competitors if Tesco or M ; S are to join the same market. From the two possible strategic directions that Sainsburys could take, it is recommended that a merger would be a better direction. It is clear to see that a joint venture is more risky and is not as directly linked to market growth as the merger; however a merger seems to back Sainsburys aims and objectives better as a merger is more directly linked with growth and development.
In conclusion, choosing a strategic direction or development is always difficult, but it is clear to see that a merger, although may take longer to agree upon, would be a better choice for Sainsburys as their aims to grow and develop can be met in a considerably sooner time period. In terms of suitability, acceptability and feasibility (SAF), a merger still seems the right direction. A merger is clearly suitable as it is directly linked with their mission and strategic intent.
It is also suitable as the merger addresses strengths and weaknesses of the plan. Sainsburys also has the resources to go ahead with a merger making the plan feasible. If a merger deal is finalised, key stakeholders are going to be accepting this merger only if they are clear on what sort of return they will receive, if any. If stakeholders are to agree with the merger, Sainsburys need to live up to the expectation and be certain they can profit from the merger.
